Journal of Economics and Sustainable Development www.iiste.org ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online) Vol.11, No.22, 2020 110 Is It Formal or Informal? Choice of Market Outlets for Unprocessed Tea in Nandi County, Kenya Mr. Vincent Mittei Department of Agricultural Economics and Agribusiness Management, Egerton University Dr. Hillary Bett Department of Agricultural Economics and Agribusiness Management, Egerton University Dr. Jackson Langat Tegemeo Institute of Agricultural Policy, Egerton University Abstract The tea industry plays a key role in the agriculture sector and the economy at large with tea output contributing about 11% of the agriculture sector’s contribution to Gross Domestic Product. Like many other crops in Kenya, tea is produced both on small and large-scale basis. Smallholder farmers in Kenya make a significant contribution to the industry producing 61% of the total national production and with 66% of tea acreage. Formal market outlets are more profitable than informal ones. However, small tea agri enterprises in Nandi County prefer selling their unprocessed tea to informal market outlets. Empirical evidence on what motivates these agri- enterprises to sell most of their tea to these outlets is scanty. The main objective of this study was to compare the profitability of formal and informal market outlets for unprocessed tea in Nandi County. Multistage sampling procedure was employed and 384 respondents interviewed using semi-structured questionnaire. Data were analysed using gross margin analysis. Formal market outlets are more beneficial because of higher gross margin rate of 12.71% compared to informal market outlets having the gross margin rate of 1.08%.The findings are helpful in guiding smallholder tea farmers in information on the most profitable and efficient market outlets and informing policy makers on how to improve the efficiency of market outlets. DOI: 10.7176/JESD/11-22-10 Publication date: November 30 th 2020 1. INTRODUCTION Kenya has a dual economy comprising of formal and informal economy. It is also an agricultural based economy with leading crops being tea, horticulture, cereals (wheat and maize), sugarcane and livestock production contributing to rural employment, food production, foreign exchange earnings and rural incomes (Kiprono et al., 2011). The agricultural sector directly accounts for about 26 per cent of Kenya’s Gross Domestic Product (GDP) and 27 per cent indirectly through linkages with manufacturing, distribution and other service related sectors (KNBS, 2016). Entrepreneurial and market orientation, as well as organizational competency and the ability to use social networks, are important capacities upon which famers can build competitive advantages to help them succeed in free markets and eventually achieve sustainable development (McElwee, 2006).Competitive advantages mediate entrepreneurial orientation and marketing performance reflected from the innovation and market differentiation (Pardi, 2014). Market liberalization has given farmers a choice of where to sell their unprocessed tea. The multinational firms have at least managed to access the smallholder tea farmers, which were not possible before market liberalization. The freedom of market choice has led to rise of whether formality or informality in marketing. Informal markets outlets is being preferred by majority of farmers because they pay promptly for the unprocessed tea delivered as per demands of the farmer while KTDA and private companies pays on monthly basis (Kirui et al., 2014). Informal market outlets are evident as one of the main arising market alternatives in the tea industry. Trends in industry provide a platform for emergence of unregulated businesses. In this case, liberalization of the tea sector is the key factor that influence the behaviour and production techniques of smallholder tea farmers in Kenya. Increased awareness on entrepreneurial and market orientation have had greater impact on the welfare of the household through change in production levels and income from tea agri- enterprises. Informal market outlets involves agri-preneur trading tea leaves among themselves (Muku and Mwaura, 2007). The choice of market outlet is the farmers’ decision-making behaviour and market orientation on where to sell their farm produce. Marketing outlet choice is determine by numerous factors that include socio-economic factors, institutional factors, production factors and market factors. These factors could have negative or positive influence, which could eventually affect the welfare of the smallholder farmers.